finance for millennials
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My wife and I are first time parents and we are now one month into the “parenting” process. I made it a goal to track all of our child care expenses so I could truly report on the cost of raising a child.

We are one month in and thus far we have spent $414 on my daughter in total. We have lucked out and received a number of hand-me-down clothes and toys, as well as a ton of gifts from our baby shower that are still holding us over well.

I don’t use this Millennial personal finance blog to brag about anything I do financially, whether it be via investing or my professional career and my salary. However, I do want to take a minute to pat myself (and my wife) on the back because we just opened a 529 college savings account for our newly born daughter, who is less than one week old. To be exact, she wasn’t even six days old actually!

529 college savings plan

I know there may be some naysayers out there, considering you can technically open a 529 college savings plan prior to your child’s physical birth. You can open an account long before you even have a child or the minute you find out you’re expecting. I was fully aware of this option but I just couldn’t bring myself to opening an account for a baby we hadn’t had yet. I know the risks are ultra-low of complications with the baby, but I just felt like it was a possible jinx if I opened a 529 before my baby was born. But I was determined to open a 529 nearly immediately after she blessed us with her presence.

Oddly enough, I actually opened my account for my 6-day old the same way you would if you opened a 529 college savings plan for a child 6 months before birth. I didn’t yet have a social security number for my daughter, which along with a name and birthday is all you need to open a 529 college savings plan. So instead I opened the 529 and assigned myself as the “student”, aka the beneficiary of the plan. Once I have a social security number for her I can then transfer the account over into her name. Any transfer within your family is free of charge. It is no different than the transfer policy from one child to another due to one child receiving a scholarship and deciding not to attend college.

The process for opening my daughters 529 college savings plan could not have been easier. I was able to quickly setup the account and connect it to my bank account via a routing and account number. I easily setup an automatic monthly transfer that begins this April. And then I setup an auto increase on her birthday each year. So beginning in March 2018 I will contribute $25 more each month, and then again in 2019, 2020, etc. I was then able to make a one-time contribution to kick start my daughters 529 college savings plan.

Automate Your 529 Savings Plan

I love automating my savings goals and this 529 plan allowed me to do this effortlessly. I will now be contributing to my daughters 529 at least monthly and that amount will go up each year to ensure I save as much as possible. We hope to receive some “college money” as gifts for her birthdays over the years from grandparents and other family members as well. We can then easily log in and make a contribution to her account when that happens. Its great.

Future Cost of College Calculator

And I am going to need all the help I can get to afford college in 18 years (year 2035). I played with a future cost of college calculator and the projected costs are unreal. Seriously, unreal what the anticipated costs of college would be in 18 years. For an in-state public university in my state, college tuition is expected to range from $92,000-$170,000, depending on the university, in the year 2035. Again, these ranges are only for in-state public school, nothing private, and these costs are only for tuition and fees, no room and board. If I want to pay for all college expenses (tuition, fees, room and board), that will run me anywhere from $111,000-$310,000 for four years of college. Wish me luck…at least I opened her account when she was 6-days old so I now have compound interest on my side.

I came across a recent article on proper retirement asset allocation strategies. The article quoted Morningstar’s personal finance expert Christine Benz. She recommended splitting your portfolio into three separate buckets, and not your typical asset classes you normally read about when researching retirement diversification strategies.

Instead this was about how to proportionately divide up your retirement account money to ensure a proper retirement landing. I’ve done extensive reading up on retirement allocation and overall retirement strategies and this was the first time I’ve read this advice.

Let’s pretend the Jones’ are 65 and retired. They saved really well and have $1 million saved for retirement. They can live on $80,000/annually, e.g. $80,000 would be one year of living expenses for them. In this scenario they would allocate $80,000 to cash (if not $160,000). They would then earmark $400,000 towards bonds (5 years of living expenses X $80,000). The remaining $520,000 of their retirement assets would then be allocated all towards equities/stocks to ensure the portfolio continues to grow and last for 25+ years to ensure the Jones’ have a long, happy retirement.

I’ve read this countless amounts of times that most certified financial planners recommend entering retirement with a 50/50 asset allocation (50% stocks and 50% bonds). The above scenario lays out that 50/50 breakdown a bit more clearly and explains why you would want that asset allocation. I like this recommendation, despite the fact that I believe my future “retired” asset allocation would be 60/40 (60% stocks and 40% bonds). So I would lean slightly more aggressive than this scenario, but still fairly close. With that said, if my portfolio is in a really good place and I’m looking more to preserve wealth versus “growth”, then I would probably be 50/50 or even 40/60 (40% stocks and 60% bonds).

Granted, the aforementioned is catered towards those nearing retirement. It doesn’t totally pertain to Millennial’s, which is who I am posting retirement and personal finance advice for. However, this advice struck me and was really interesting. I think it’s worth noting for anyone, regardless of age and stage of retirement. I believe it is good food for thought for Millennials.

Nearly 10 years ago we saw one of the worst financial market crashes, causing a huge recession and a housing meltdown. It was the ‘2008 Financial Crisis’ and our financial system truly unraveled during this time. Albeit, some much needed regulation was put in place.

I am a Millennial and this crash began just a couple of years after I graduated college. I was lucky enough to land a good job just before all of this. I know it impacted me greatly and my savings habits. Luckily I was just getting into the market and beginning to invest, e.g. I was buying stocks on clearance for years. Baby Boomers and my parents generation was not so fortunate. And virtually all generations have been scared of the market ever since. So, how exactly did all of this play out a decade ago?

Earlier this week I posted my review of Charles Duhigg’s wonderful self-help book on ‘The Power of Habit’. Duhigg explores how we form habits and what it takes to break those bad habits and form new, good habits.

“As people strengthened their willpower muscles in one part of their lives—in the gym, or a money management program—that strength spilled over into what they ate or how hard they worked. Once willpower became stronger, it touched everything.”

Like virtually all books I read these days, I instantly go to how this came help me financially and help me with my personal finances. Over the last couple of years I have gotten into the “habit” of saving aggressively for retirement and budgeting so I ensure I live within my means. In 2015 I increased my 401k savings and upped my emergency fund. In 2016 my wife and I both maxed out our Roth IRA’s and I again increased my work-sponsored 401k plan.

It became a game for us to challenge ourselves to save more and more. It became a habit and we kept pushing ourselves to save more. We knew the more we could save at an early age, the better our chances are at retiring early. We kept learning how to live on less money each month so that we could continue to allocate more towards savings and retirement.

In 2017 I again increased my 401k savings to 12% of my income. We both plan on maxing out our Roth IRA’s. We’ve even discussed the potential of maxing out my work 401k plan, which would be $18,000. I don’t think we’ll get there this year or even next year, but still, if I can max out my 401k before the age of 35 we’d be in a great spot at eventually retiring early (age 55). We’re expecting our first child very soon and plan on starting to save for college ASAP via a 529 plan. So the new, added expense of a child makes maxing out my 401k a bit challenging for now. We’re going to see how our budget changes with a child to now care for and raise, then go from there. Diapers and college, here we come!

Last week, Feb 27-Mar 3, 2017, U.S. stocks increased for the fourth straight week. The Federal Reserve (Fed) have taken note of these positive surprises, and many have stated that a short-term interest rate increase would be appropriate at its next meeting on March 15. And next week light vehicle sales will be released, which should help move the market, whether that be positively or negatively.

Below is a snapshot of my three biggest retirement portfolio mutual fund movers (and losers!) in terms of percentage gained last week.

The below mutual funds are held within my work 401(k) plan as well as two separate Roth IRA plans. All accounts are held with Vanguard.

Vanguard REIT Index Fund (VGSLX) -1.4%

DFA U.S. Small Cap Value Portfolio (DFSVX) -0.7%

Vanguard S&P 500 Index Fund (VFIAX) 0.7%

Can I Beat the Stock Market?

I am actually not trying to “beat the market” with my retirement portfolio…I am trying to match it. I do have alternative indexes in my retirement portfolio to help possibly beat the market, e.g. Small Cap Value, REITs, International, and Emerging Markets. I am purposely over-weighted in Small Cap Value, which at times helped me beat the market and at the same time lag the market. I am actually considering rebalancing my allocations a bit so I’m not so heavy in Small Cap Value, but I do like its potential. I’ve read countless academic articles about how it has historical beat large cap stock and the S&P 500. I am investing for the long haul so even though I am not beating the market right now, I feel confident about my future earnings/potential.

With that said, if I can beat the market I will absolutely take it (obviously)! In the last 90 days my portfolio is up 5.84%, whereas the S&P 500 is up 8.72%. So I am lagging the market, and this is the first time I am behind in months.

I am a liberal arts major and I am my own financial advisor. My goal with this personal finance blog is to show all Millennial’s that you have the power to take control of your personal finances through self-educating on money and finance, and by striving to become financially literate. That is what I have been doing for years now, focusing on becoming financially literate, so I can one day become financially independent. I’m trying to prove to Millennial’s that we can all do this and thrive with money. Follow my blog as I highlight relevant personal finance topics pertaining to us Millennial’s.

Several years ago my wife and I decided to dramatically change our lifestyle and stop living paycheck-to-paycheck. It’s taken us just under three years but we now 100% have our financial life in order. Our retirement accounts are hefty for our age and we have an emergency fund with 5+ months of expenses. We are now living well within our means, which provides us with a lot left over to throw at retirement and our home mortgage.

The purpose of my personal finance blog for Millennials was to show others that you don’t need a finance degree to get out of debt and become financially independent. I read money, finance, investing, and personal development articles and books like crazy. I listen to podcasts and audio books on money as well to continue to grow my knowledge on investing and personal finances.

I recall reading an article about the traits found in self-made millionaires. I read the article and felt great at every turn because I thought to myself, “that’s what I do!” It’s a great feeling. I wanted to share those traits with my fellow Millennial readers to inspire them to think differently about money, investing, and retirement so you and I both can one day (very soon, hopefully) be Millennial Millionaires!

But first, to put the idea of becoming a “Millionaire” into perspective, that examine how much money, or lack thereof, that really is. If you retired with one million dollars today and used the 4% withdraw rule that would leave you with $40,000 annually to live on. Not so great, huh? Us Millennials have time and compound interest on our side so we need to think bigger. I want to be a Millennial Millionaire with $3 million to retire on. That would leave my wife and I with $120,000 annually to live on. That sure sounds like financial independence to me! So what is it going to take to become a Millennial Millionaire?

I am a college graduate and my wife is not. I feel like we’re in a great spot and on the right trajectory. So goes to show that any education level makes it possible, but a college degree may help more. However, I would argue that work ethic trumps the degree.

Millionaires understand the power of compounding interest

From the day I graduated college and started my first full-time job I began saving for retirement. I was only 22 at the time. I had lots of debt (student loans and credit card) and wasn’t making a ton. But I knew I needed to save for retirement and save as much as I could. Any little bit at that early age would help. I did the same for my wife (who was only my girlfriend at the time) and forced her to open an account with a brokerage firm since she was independent. Compounding interest is amazing and can virtually double your investment every 7 years.

Self-made millionaires live within their means

One of the biggest traits of self-made millionaires is that they tend to live within their means and operate within the parameters of a budget. This certainly wasn’t me until a few years ago. I didn’t get on a written budget until my late 20’s, but I can’t stress enough just how much money that saved me. It really shines a light on where your money is going and where you can cutback to save, and ultimately increase your take-home pay without actually getting a raise.

We swear by our budget now and monitor it very closely. We also live within our means and save habitually. We actually challenge ourselves each year to save more and more. I keep increasing the percentage of pay towards my Roth 401(k). Every bit of extra money we come across now we save. That was not what we did in our early 20’s though…but we do now and will continue to do so until we are financially independent.

Millionaire’s typically have multiple income streams

A great deal of millionaire’s are well diversified with their income streams. No shock there. This is probably my biggest weakness right now as I don’t have any other source of income other than my job. Same goes for my wife. I have obviously created this personal finance blog for Millennial’s to track and note my journey. I plan on buying a rental property at some point down the road when I have enough money, but right now I live in a really, really hot real estate market where it just doesn’t even make sense right now. Hopefully at some point in a few years that changes a bit and I can dip my toe in the rental market.

Self-made millionaires usually have a mentor

Another common trait a number of self-made millionaires share is that they’ve found a career or wealth mentor along the way who has helped shape their path to prosperity. I would have to say my “wealth mentor” right now is Dave Ramsey. I follow his podcast regularly to keep me straight on my budgeting and personal finances. He regularly refers to himself as a “finance coach” too. I look at his that way without ever have meeting him. I have a couple bosses at work I really look up to professionally speaking. I follow their lead when it comes to advancing my career and increasing my income. But financially I do follow Dave Ramsey, The Motley Fool podcasts (see my post on the best podcast for Millennials), as well as a number of other great personal finance and retirement authors and bloggers out there. I try and keep my money knowledge as diversified as possible so I know all of my options.

Millionaires have defined plans and measurable goals

Finally, not only do self-made millionaires have goals they want to reach and the drive to reach them, but they ensure their progress is measurable. To become a millionaire you obviously have to make money, save well, invest diligently, and live below your means. However, without goals we have absolutely nothing to aim for. I once read if you aim at nothing you’ll hit it every single time. You have to set challenging, yet realistic goals for yourself and track your progress.

Last week, Feb 20-24, 2017, the stock market was once again up. This being the fifth consecutive week the market has been up. The Dow (DJIA) closed at a record high for 11 straight days, which is the longest record streak since January of 1987. Friday the S&P 500 closed at an all-time high. Helping stocks move higher has been a better-than-expected earnings season, as the blended earnings growth rate for the S&P 500 is nearly 5%, and about 66% of companies have reported earnings above analyst estimates. International stocks also rose as better-than-expected manufacturing data was reported in the eurozone.

Zillow reports average home values are up 7.2% in past year to $195,300

New home sales up 3.7% in January, which is less than expected from economist

24% of American’s have more credit card debt than emergency savings

30-year fixed-rate mortgage up slightly to 4.16% this week from 4.15% last week (one year ago a 30-year fixed-rate was at 3.62%)

All-time low for 30-year fixed-rate mortgage was 3.31% back in November 2012 (all-time high for 30-year fixed was 18.63% back in October 1981)

The NASDAQ is up 361% from March 9, 2009 low

Fidelity Investments reports 55% of American households are at risk of being unprepared to cover essential living expenses in retirement

Last Week’s Stock and Bond Index Performance (Feb 20-24, 2017)

NASDAQ 0.1% (YTD 8.6%)

Dow Jones Industrial Average 1.0% (YTD 5.4%)

S&P 500 Index 0.7% (YTD 5.7%)

U.S. Aggregate Bond Index 0.6% (YTD 1.1%)

How did my retirement portfolio perform last week (Feb 20-24, 2017)?

Below is a snapshot of my three biggest retirement portfolio mutual fund movers (and losers!) in terms of percentage gained last week.

The below mutual funds are held within my work 401(k) plan as well as two separate Roth IRA plans. All accounts are held with Vanguard.

Vanguard REIT Index Fund (VGSLX) 2.0%

Vanguard S&P 500 Index Fund (VFIAX) 0.7%

DFA U.S. Small Cap Value Portfolio (DFSVX) -0.7%

Can I Beat the Stock Market?

I am actually not trying to “beat the market” with my retirement portfolio…I am trying to match it. I do have alternative indexes in my retirement portfolio to help possibly beat the market, e.g. Small Cap, REITs, International, and Emerging Markets. With that said, if I can beat the market I will absolutely take it (obviously)! In the last 90 days my portfolio is up 6.07%, whereas the S&P 500 is up 7.52%. So I am just slightly behind the market, and this is the first time I am lagging in months.

I am a liberal arts major and I am my own financial advisor. My goal with this personal finance blog is to show all Millennial’s that you have the power to take control of your personal finances through self-educating on money and finance, and by striving to become financially literate. That is what I have been doing for years now, focusing on becoming financially literate, so I can one day become financially independent. I’m trying to prove to Millennial’s that we can all do this and thrive with money. Follow my blog as I highlight relevant personal finance topics pertaining to us Millennial’s.